Drivers and homeowners are being duped into renewing pricey insurance policies — and then are clobbered with financial penalties when they threaten to cancel.
In their latest tactic to boost profits, insurers are misleading tens of thousands of customers into taking out expensive cover for another year.
Following the end of the ‘days of grace’ on motor insurance around five years ago and the introduction of continuous insurance enforcement last summer, it has become more important to ensure there are no gaps in cover. And with so many people using monthly direct debits to pay, it is no surprise insurers are increasingly renewing automatically.
Not child's play: Drivers can be duped into taking out expensive cover for another year
This is perfectly legal — and, in the case of car insurance, stops drivers breaking the law accidentally. However, when the customer’s annual policy comes up for renewal, they should be given the choice to cancel.
A Money Mail investigation has found that insurers are failing to make it clear to customers their annual policy is about to end and will be renewed if they do nothing.
This means many motorists and homeowners accidentally take out two sets of insurance for the same thing; face shock cancellation fines of up to £50; and, in the worst cases, are chased by debt collectors for a bill they didn’t know they’d incurred.
‘Many insurers are guilty of poor communication and a lack of transparency in the way they handle the renewal process,’ says a spokesman for consumer group Which? ‘A lot of insurers will state in their policies that the policy will be auto-renewed, but this isn’t always made clear, causing great confusion.’
Insurers are desperate for existing customers to renew their policies because typically these are 20 per cent higher than those offered to new customers.
On home insurance policies, this can leave customers an average £140 a year worse off; and for drivers, £175 a year poorer.
The only rule about renewing policies automatically is that customers must still be told when their policy is going to end — typically, three weeks before it finishes — and whether they should do anything to renew it.
Readers, unaware of a clause in their policy, have told us of their horror at being misled into taking out their insurer’s expensive cover for a second year.
In some cases, letters saying their policy was expiring simply say: ‘Thank you for renewing.’
Others customers say they called to cancel a policy, but were still charged for the insurance regardless — and had to pay a charge to annul it.
And some having policies renewed automatically ended up paying twice for the same insurance because they took out a new cheaper policy elsewhere.
The independent Financial Ombudsman Service says it deals with about 500 complaints like this every year. Typical of these are consumers who didn’t realise their policy would renew automatically and they would be charged.
‘We also sometimes receive complaints from people who didn’t realise their insurance policy would renew automatically, so they have taken out additional insurance — meaning they are doubly insured,’ says a spokesman.
‘In cases like these, it is common for both of the insurers to agree to refund half of the premiums paid.’
Consumer group Which? is calling for firms to let consumers opt-out of auto-renewals at any stage of the policy.
If your old insurer does renew you automatically, you have 14 days to cancel the policy.
Once you have passed that 14-day cut-off, though, many insurance providers will charge you a sum to cancel your policy.
My insurer threatened me with debt collectors
He got a renewal quote from Admiral for £296, but found other cover for £70 cheaper and took this out.
‘But I’ve since had several letters from Admiral saying I owe the money because they carried on insuring me. I never even realised,’ he says.
‘They have been threatening me with debt collectors, but — unbelievably — the amount they’re demanding from me, £67.82 for cancellation and time on the policy, is about the size of the saving I originally made.
‘How can they do this? For all they know, I could have got rid of the car. It’s ridiculous.’
After Money Mail got involved, Admiral agreed to waive the fee as a gesture of goodwill.
Well done for renewing - but I hadn't
Another reader, Helen Darsely, 33, from London, was congratulated by her home insurer AA by email for renewing her policy, when, in fact, she’d done no such thing.
‘What an outrage, to be thanked for renewing when I hadn’t — it was worded so confusingly that, for a few minutes, I couldn’t work out if I’d agreed to renew or not. It’s a very unfair system.’
An AA spokesman said it constantly reviews the way it informs policyholders of automatic renewals.
‘Or, in the context of travel insurance, it means the consumer enjoys continuous protection for their overseas travel.
‘Insurers should make it clear in policy documents that, by doing nothing, the policy will be renewed automatically.’
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